Hertz Has 35,000 Teslas In Its Fleet, Not Close To 100,000 Planned — And Why

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The story of Hertz planning to buy 100,000 Teslas is one of the standout electric car stories of the past few years. It was even a notable one in the context of Tesla’s meteoric stock rise, as the stock [NASDAQ:TSLA] surpassed a market cap of $1 trillion for the first time the day after the Hertz announcement in October 2021. (It’s current market cap is just under $645 billion.) But the big deal — the big point — was that electric vehicles were going mainstream. Unfortunately, some hurdles were around the corner.

There’s a lot of “slow down the EV revolution” hype in the U.S. right now. Part of that may be due to automakers discovering their expectations for EV sales growth were higher than realistic. Part of that may be automakers trying to stir unhelpful, misleading, anti-EV nonsense into the discussion — as they’ve been doing for years, or even decades. Part of that may be an attempt to find a scapegoat in a tough auto industry climate. Part of that may be related to the fact that so many people (nearly 7% of those financing a car) are 60+ days behind on their payments — the most in about three decades! Part of the issue may simply be poor EV education.

All of those factors could certainly be affecting Hertz. However, Hertz has its own can of worms to deal with as well.

Before I get into issues Hertz raised on its quarterly investor conference call, I’ve got to tell a story I told recently on one of our EV Obsession episodes on YouTube. I was about to leave a Tesla Supercharger after doing some grocery shopping and charging up in the meantime. But then I saw a man walking over to me from his Hyundai IONIQ 5, which was parked at a Supercharger at the end of the lot. It turned out, the car wasn’t his — he had just rented it. (I never found out if he got it from Hertz or another rental car company, but I presume he got it from Hertz. Actually, a couple days ago, I was at the same Supercharger and two Hertz employees pulled up to charged two Tesla Model 3s there. We talked about EVs for a few minutes and they said they had about 30 Teslas at their location — and that’s at a rather small airport. They had some other EVs as well, but not nearly as many.)

This renter who I ran into seemed like a practical, down-to-Earth professional, but his question was about whether he could charge the IONIQ 5 at the Supercharger. Of course, that isn’t possible yet, and I had to ask him several questions in order to do my best to help him charge his electric rental. It turned out, he had wanted to rent a Tesla, but they gave him the Hyundai instead. What was shocking to me was that they apparently didn’t tell him anything about how or where to charge the car. How can you rent EVs out in 2023 and not explain these things to people? In fact, it seems that a rental car company should include cards/accounts for charging as well, because one can’t assume someone renting an EV will know where to charge or how to charge, or have the extra accounts and cards/apps to charge away from home. It is bonkers to me that Hertz doesn’t have solid national policies to make an EV rental experience seamless, simple, and clear. So, yes, aside from what may be solid points from Hertz on why it is missing its earlier EV targets and postponing progress, I expect that renters have a pretty high rate of dissatisfaction with the experience, from being thrown out into the wild without explanation, support, or the proper tools.

Simon Ouellette, the CEO of ChargeHub, recently told CleanTechnica: “EV adoption is increasing fast, and as a result, customers’ expectations are also increasing fast. The most important aspects of EV drivers’ expectations can be summarized as three main points: ease of charging, speed of charging and availability of chargers.” When I’m talking to someone who just rented a Hyundai IONIQ 5 whose best options for charging are to slow charge for several hours at one of the possibly broken chargers in front of the Whole Foods or drive a half an hour to downtown, near his hotel, and hope for a slow charge there where he can explore downtown or walk for 10 minutes to his hotel, and I can see he’s not super enthused or confident with either option, I can practically witness the EV market losing buyers in real time.

But that’s enough of that. Let’s look at the other issues Hertz raised, after a brief look at some Hertz EV stats. Although Hertz said that it planned to buy 100,000 Teslas by the end of 2022, it “only” has 35,000 in its fleet right now, and about 50,000 electric vehicles overall. (I guess Elon should have locked in that 100,000-vehicle order a little better.) The problems that Hertz has run driven into have been threefold.

First of all, maintenance costs have been higher than expected. The guys mentioned a few things, but I expect the most notable one was the tires. Like many Tesla owners, I was surprised a couple of years ago to discover how frequently I’d have to change my tires and how much they’d cost. However, while I then decided to modify my behavior a bit and stop jetting off the line at every red light and stop sign, Hertz is in a different situation — many of its renters are sure to test out the torque, probably a lot.

“The reality of electric vehicles is that they can be 1,000 pounds heavier or more than gas vehicles, and they move faster, with higher torque. Since they’re extremely zippy and heavier, it’s just physics — the ability to overcome inertia so quickly is going to effect their suspension systems, the brakes and steering columns,” Nikhil Naikal, CEO of Kinetic, offered as analysis. “It’s counter-intuitive, but even with fewer moving parts they are susceptible to requiring more maintenance. They especially require tire-swapping, because the tires wear out more quickly from that high torque and weight.” In general, EVs need brakes replaced less often because they are used so little due to regenerative braking. However, I can imagine a lot of renters 1) not being familiar with regen braking and not using it to its full potential, and 2) as stated a moment ago, testing out the acceleration, and then the braking, a lot. Also, Teslas aren’t known for having the best or sturdiest brakes (due to people typically not using them much), so if the usage pattern is different from what was expected, the brakes may wear out much quicker — as well as the suspension, steering columns, etc. And, for that matter, Tesla hasn’t been known as the bastion of quality control or reliability.

Aside from routine maintenance, it seems Hertz may have a problem with aggressive drivers also bumping and bruising Teslas more. “Our focus and our work with Tesla is to look at the performance of the car so as to lower the risk of incidents of damage,” Hertz CEO Stephen Scherr said. “And we’re in very direct engagement with them on parts procurement and labor and the like.” He also said, “Our direct operating expenses remained controlled in the quarter as they grew with transaction volume. On a unit basis, we achieved productivity gains across most categories of auto. The exception remained vehicle damage costs, particularly those on our EVs.” Hmm. … Are renters wrecking Teslas more due to the torque, due to their desire to have extra fun with the cars, duty to distraction using the touchscreen, or something else? I’m curious to find out how Tesla will help Hertz with this — is it going to throttle the power of the rental cars? That seems very unlike Elon, who surely wants renters to experience to full might of Tesla’s models and buy their own.

And then there’s a really big matter, especially to those of us who have done a lot of total cost of ownership analyses: depreciation. When Tesla was on top of the world and resale value for a Model 3 was abnormally high (meaning depreciation was abnormally low), 5-year cost of ownership of a Tesla Model 3 looked ridiculously good. However, as Tesla production has gone up (a ton), as the economy has gotten tamed by a pandemic, and as Tesla has lowered prices dramatically, Model 3 and Model Y owners have discovered a shock when it comes time to care about depreciation. Hertz is telling us this is really throwing cold water on its Tesla/EV plans. “MSRP declines in EVs over the course of 2023, driven primarily by Tesla, have driven the fair market value of our EVs lower as compared to last year, such that as salvage creates a larger loss and therefore greater burden,” Scherr stated.

Image courtesy of Hertz.

All in all, those are some strong reasons to support the company’s plans to slow down its Tesla/EV purchases. However, I still think one of the company’s biggest issues is not helping renters to understand what they are getting into. I think that should include giving them charging network cards or apps (with charging costs just getting added to the renter’s final bill), detailed instructions on how and where to charge, and basic walkthroughs of how to charge. Without those things, if a renter doesn’t already have an EV or isn’t totally on top of things, there’s a high likelihood he or she will experience stress, run into problems, and be turned off from EV life. It was a shock to me to find out that these basic support mechanisms are not the default.

 


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